Saturday, December 14, 2013

The “starter job” myth and economic reality

After my post on Impractical Catholic, “Conservative ‘cafeteria Catholics’ on parade”, got linked into Facebook, my fellow Catholic Stand writer, screenwriter/producer John Darrouzet, asked me if I’d seen Jon Stewart roast the FOXNews business pundits on The Daily. Thoughtfully, he provided a link in case I hadn’t. I hadn’t, because I don’t follow either The Daily or The Colbert Report. (I just don’t watch a lot of TV anymore.)

If you haven’t seen it, go ahead and watch it now; I’ll still be here when you get done.


Stewart is at the top of his game; but then, morons of that caliber are almost too easy to mock. FOX must have some kind of satanic genius for picking commentators that liberals can laugh at; Megyn Kelly’s jaw-droppingly racist “white Santa” statement was an early Christmas — er, “holiday” present for left-wing wits all over the nation.

The one comment that really arrested my attention was made by — I’m sorry, I don’t know any of the players on The Kudlow Report, so I’ll just call her “Talking Head #2”: “I’m a big fan of ‘empowerment’ over ‘entitlement’, and these minimum-wage jobs aren’t meant to be life-long jobs; they’re supposed to get your foot in the door and get skills ….” Or, as a co-worker of mine spat, “They’re supposed to be ‘starter jobs’ for high-school kids, kids working their way through college!”

I don’t know where that myth got started. That it is a myth, a just-so story devised to confirm alrightniks like TH2 in their vocational superiority and material comfort, is incontestable. In the normal course of operations, businesses don’t create jobs to fit a particular kind of applicant; they create the job and then fit hiring criteria to it. TH2 and my coworker have the sequence exactly backward.

The only things minimum-wage jobs are supposed to be are easily learned and stingily paid. In my QSR (quick-service restaurant) experience, teenagers and college kids are not the preferred applicants, because adults are generally more responsible and dependable; you never know when a younger coworker will decide to blow off work for a party or a road trip with his friends. Some restaurants won’t even look at applicants under sixteen because the hours they can work during the school year are restricted by law. And none of the chains I’ve worked for have had an “up or out” policy, nor have they striven to promote from within. If for some reason you choose to remain a lowly “team member” for twenty or thirty years (it does happen), they’ll let you be so long as you show up when you’re supposed to and you don’t steal from the cash register.

Again, the only things minimum-wage jobs are supposed to be are easily learned and stingily paid. Minimum-wage employers are the bottom feeders of the business world, sucking in candidates other employers for one reason or another didn’t see fit to hire, sucking in people who for one reason or another have no special skills or talents which can command higher wages, sucking in people desperate for work and without the resources to wait for a better offer. Not because the employers are generous, public-spirited souls but because they want to keep their labor costs down.

Having said all that, I have to admit that a $15 minimum is too big a jump.

Some time ago, in another economics piece, I wrote that “According to neoclassical theory, the increased labor costs [from minimum wage hikes] get passed along to the consumer in the form of price hikes, which consequently push demand down and result in loss of labor. Sounds neat and tidy, and it sure plays well with many Republicans; but in the real world this almost never happens. … [T]he increased labor cost per unit of goods produced is usually so negligible that its effect can’t be distinguished from the normal demand cycle, and is often not worth even a modest price increase.” And, in fact, the FMW has lagged behind the CPI so that in real terms it buys less than it did in 1978.

What the QSR employees are demanding, though is a 106.89% increase — more than ten times the average of the last ten increases since 1978 (10.61%). The rationale above won’t hold.

QSRs are considered a high-leverage operation; that’s to say that most of what comes in the door as revenue goes right back out to cover expenses and accounts payable; an owner is doing pretty good if she sees 6 – 8% of her revenue as before-tax profit. The restaurant industry is very price-sensitive, and food costs tend to be volatile; the last recession hit the industry pretty hard as cash available for dining out dried up.

Food and labor costs generally run about 25 – 30% of revenue each. In a well-run restaurant that’s modestly profitable, about $1.81 of your $6.59 combo meal is eaten by labor. A doubled minimum wage, all other things remaining the same, means that about $3.26 of your now-$7.99 combo, or about 40%, is labor.

But wait, there’s more! There are a range of jobs that pay more than minimum wage yet less than $15/hour. While their wages wouldn’t necessarily double along with the minimum, the demands of their labor pools would ensure at least a 75 – 80% increase across the board. Moreover, this would affect a wide variety of industries; the resulting hyperinflation would leave QSR workers little better off than before. That combo meal (now $11.89) would be relatively cheap again … assuming the chain survives the havoc the raise would wreak.

I’m not confident that the problem with fast-food wages could be cured by converting QSRs to employee-owned businesses, because the problem lies in the business model. Or perhaps it would be more true to say that the problem lies with the nature of the QSR industry itself: providing quick and unhealthy meals to people who either have no time to cook a healthy meal for themselves or who don’t want to be bothered to pack a lunch for work (guilty as charged, he admitted). QSR meals are supposed to be cheap; we the consumers would revolt if a Whopper with fries and soda from Burger King cost as much as a steak au poivre with asparagus spears Béarnaise and a fine merlot from Delmonico’s.

Yes, the minimum wage should be raised. I submit that $9.65/hour would bring it to near-parity with the 1978 minimum in real wages; while this would be a 30% increase, the effect on overall consumer prices would be tolerable. Furthermore, I submit that the FMW should be tied to the CPI and reviewed by the Bureau of Labor on at least a tri-annual basis, with an absolute floor of 0% unless there are six or more quarters of deflation.

But let’s not tell ourselves any stories about who’s supposed to work minimum-wage jobs. The fact is, we don’t really care who fills these jobs or how they ended up there so long as we don’t pay “too much” for what they provide. If QSRs are the closest model we have to wage slavery, we the consumers are willing and unindicted co-conspirators in maintaining the system that permits such jobs to exist.

Bad choices or bad luck? Who cares … gimme my goddamn fries.

Nota Bene:
The CPI used for the chart above includes food and energy costs in its calculation. While food and energy prices are more volatile, their volatility is short-term and is properly excluded only in analyses that cover relatively short periods (month-to-month over a course of five years or less).